Taking issue with Moody's

Stockton City Manager Bob Deis has taken considerable exception to Moody's Investors Service rating the city as something less than a pristine investment choice.

The Record

Stockton City Manager Bob Deis has taken considerable exception to Moody's Investors Service rating the city as something less than a pristine investment choice.

In fact, Moody's classifies the city as junk, as in a Caa3 rating, junk bond status.

Not that the rating should surprise anyone. The city's major lenders spent a week in court trying to convince a bankruptcy judge that the city could pay them the millions owed and just wanted bondholders to take a haircut. The only haircut.

The judge allowed that they were hardly the only group taking a hit and that they had utterly failed to prove otherwise.

Deis pointed that out in a letter he posted last week with the Municipal Securities Rulemaking Board that he appealed to Moody's "because you simply continue to misinform the public."

Not that Moody's and the two other big ratings outfits - Standards & Poor's and Fitch Ratings - haven't done that before. During the run-up to the real estate meltdown, their due diligence in ratings of mortgage-backed securities might charitably be described as lacking.

"I thought Moody's had a fiduciary responsibility to provide accurate and unbiased information," Deis said in his letter to Eric Hoffman, a senior vice president and manager at Moody's San Francisco office.

This is not to suggest Moody's hasn't done its homework this time. Obviously, if Hoffman has been watching the goings-on in Stockton from the other side of the Altamont Pass the city's troubles are not lost on him.

Still, it would not be out of line to suggest that Moody's and the other investment rating companies have priors. All three essentially sold investors a line when they told them all those funny-money real estate mortgages being bundled up by banks and investment houses were investment grade. There was a little fiduciary slippage there.

It would be surprising if Deis' letter gets more attention from Moody's officials than an order it be filed. But in such circumstances it's the kind of missive you want your city manager to dispatch even if you know no wise investor would seriously contemplate lending Stockton millions today.